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A Walkthrough the PPP Loan Forgiveness Application Recorded on May 20, 2020 1
A Walkthrough the PPP Loan Forgiveness Application
Recorded on May 20, 2020
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Disclaimer
• This presentation and related materials are designed only to provide general information regarding the subject matter discussed during this presentation. The statutes, authorities, and other laws cited in this presentation are subject to change.
• This presentation and related materials are not intended to provide tax, accounting, legal, or other professional advice to any specific person or entity. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional advisor based on an application of the appropriate law and authorities to the facts and circumstances applicable to that person or entity.
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PPP Loan Forgiveness Application Form
• Friday, May 15th the SBA released the loan forgiveness application• Application has four required forms:
1. PPP Loan Forgiveness Calculation Form2. Representations and Certifications Form3. Schedule A 4. Schedule A Worksheet 5. Demographic Information Form (this is optional)
• FAQs should be coming out in the next few hours/days
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Submit this to your lender
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Maximum amount of loan eligible for forgiveness
Date you received the funds – generally the start of your 8‐
week period
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Don’t really see how this impacts the
application, but they are asking for it
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If you received an Economic Injury Disaster Loan Advance (Grant) – it
will reduce your forgiveness amount
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SBA will use this to determine when payroll costs are paid or incurred and eligible for forgiveness and will be used
in calculating full time equivalent
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8‐week period beginning on the date you received the loan
disbursement
Covered Period Rules
• Only costs paid OR incurred within the 8‐week period are eligible for forgiveness• Specific for payroll costs
• Payroll is considered paid on the day paychecks are distributed or the borrower originates an ACH credit
• Example: Pay period is for April 1st through 14th. You received the loan April 16th. You pay the payroll on the 18th. You can use the forgivable funds for this payment.
• Note: What we don’t know – how far back can you go back? Pay all of March in April?• Payroll is incurred on the day the wages are earned
• Example: Pay period ends on the last day of your 8‐week period, but you pay your employees the day after the 8‐weeks expires. Because it was incurred during 8‐week period it would be allowed as long as it was paid before the next regular payroll
• Specific for Mortgage, Rent, and Utilities:• You are fine if paid during the 8‐week period• Also fine if incurred during the 8‐week period and paid by its next regular due date, even if it is outside the 8‐week period
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Flexibility for 8‐week period (56 days) specific to Payroll Costs
Allowed to choose “alternative payroll covered period” beginning on the first day of the first pay period following the disbursement date, if
payroll is biweekly or more frequent
Doesn’t apply to rent, mortgage, or utilities
Have to use it anywhere the application says “alternative payroll covered period”
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SBA has safe harbor for loans that are less than $2 million
DO NOT CHECK IF SMALL BORROWER
Now Let’s CalculateStarting with Schedule A Worksheet
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Schedule A Worksheet
• Four Computations1. Eligible compensation for each employee2. Calculate compensation cap of $100,000 per employee on an annualized basis3. Determine the number of full‐time equivalent employees (FTEs)4. Use the FTEs to determine if a reduction of eligible forgiveness is required
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Employee Compensation
• Identify each employee, but do not include:• Independent contractors – not eligible for forgiveness• Self‐employed individuals – forgiveness for payroll costs is 8/52 of Line 31 of the individual’s 2019 Schedule C
• Owner‐employees – these are included later• Partners – these are included later
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Table 1
• List employees with annualized compensation for ALL pay periods in 2019 of less than $100,000
• Still no guidance on bonuses given
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Table 1 Breakdown – Cash Compensation
• Includes:• Salary, wage, commission, or similar compensation• Payment of cash tip or equivalent• Payment for vacation, parental, family, medical, or sick leave• Allowance for dismissal or separation
• Does not include:• The compensation of an individual employee in excess of an annual salary of $100,000
• NOTE: You should not enter more than $15,384 in this column for either Table 1 or Table 2• Any compensation of an employee whose principal place of residence is outside of the United States
• Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127)
• Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127)
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Table 1 Breakdown – Average FTE
• How to calculate FTE: Average number of hours worked during the covered period (or alternative period) and divide by 40 before rounding to the nearest 10th
• Maximum amount for each employee is 1.0• There is a simplified method:
• Each employee that worked 40 hours gets 1.0• Each employee that worked less than 40 hours gets 0.5
• Choose the option that maximizes your FTE number
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Employee Hours Detailed FTE Simplified FTE
A 60 1.0 1.0
B 40 1.0 1.0
C 28 0.7 (28/40) 0.5
D 20 0.5 (20/40) 0.5
E 20 0.5 (20/40) 0.5
Total 3.7 3.5Source: https://www.forbes.com/sites/anthonynitti/2020/05/16/sba‐releases‐paycheck‐protection‐program‐loan‐forgiveness‐application‐a‐deep‐dive/#1cbad5fd1b2f
Table 1 Breakdown – Salary/Hourly Wage Reduction
• Loan forgiveness will be reduced by:• Any reduction in the total Annual Salary or Average Wages of any employee during the covered 8‐week period who did not receive wages or salary in 2019 of more than $100,000
• Reduction is required if the reduction in wages is in excess of 25% of the total salary or wages from January 1,2020 through March 31, 2020
• Steps to determine the amount of the reduction (must be done by employee):1. Determine the average annual salary or hourly wage for each employee during the 8‐week
period2. Determine the average annual salary for each employee from January 1, 2020, through
March 31, 20203. Divide Step 1 by Step 24. If Step 3 is greater than 75%, no reduction is required and you DO NOT fill out this column
in Table 1 for the employee5. If Step 3 is less than 75%, a reduction could be required *stay tuned*
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Tentative Limitation Calculation
• If Step 3 is less than 75%• For a Salary Employee
1. Multiply amount determined in Step 2 by 75% 2. Subtract from that result the amount from Step 13. Take this result and divided by 52, then multiply by 8
• For an hourly employee 1. Calculate the average number of hours worked per week from January 1, 2020 through March
31, 20202. Multiply by [(75% of Step 2) less (Step 1)]3. Take this result and multiply by 8
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What?!?
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Example
• Employee A• Annual Salary for 2019 ‐ $100,000• Paid $20,000 from January 1, 2020 through March 31, 2020• Paid $8,000 during the 8‐week covered period
1. Step 1: Determine the average annual salary or hourly wage for each employee during the 8‐week period $52,000 ($8,000/8*52)
2. Determine the average annual salary for each employee from January 1 2020, through March 31, 2020 $80,000 ($20,000*4)
3. Divide Step 1 by Step 2 65% ($52,000/$80,000)4. If Step 3 is greater than 75%, no reduction is required and you DO NOT fill out this column
in Table 1 for the employee N/A5. For a Salary Employee
1. Multiply amount determined in Step 2 by 75% $60,000 ($80,000*75%)2. Subtract from that result the amount from Step 1 $8,000 ($60,000 ‐ $52,000)3. Take this result and divided by 52, then multiply by 8 $1,230 ($8,000/52*8)
22Source: https://www.forbes.com/sites/anthonynitti/2020/05/16/sba‐releases‐paycheck‐protection‐program‐loan‐forgiveness‐application‐a‐deep‐dive/#1cbad5fd1b2f
There’s More – Safe Harbor
• No reduction is required if the safe harbor is met – remember “could be”• Safe Harbor Calculation:
1. Determine the annual salary or hourly wages as of February 15, 20202. Determine the average annual salary or hourly wage from February 15, 2020 through April
26, 20203. If Step 2 is greater than Step 1 – safe harbor DOES NOT apply; If Step 2 is less than Step 1 –
keep going4. Determine the average annual salary or hourly wage for the employee as of June 30, 20205. If that amount is equal to or greater than Step 1, safe harbor HAS been met
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Example
• Employee A• Annual Salary for 2019 ‐ $100,000• Annual Salary on February 15, 2020 ‐ $75,000• Annual Salary from February 15 through April 26, 2020 – reduced to $55,000• Annual Salary by June 30, 2020 – increased to $75,000
1. Determine the annual salary or hourly wages as of February 15, 2020 $75,0002. Determine the average annual salary or hourly wage from February 15, 2020 through April 26,
2020 $55,0003. If Step 2 is greater than Step 1 – safe harbor DOES NOT apply; If Step 2 is less than Step 1 – keep
going4. Determine the average annual salary or hourly wage for the employee as of June 30, 2020
$75,0005. If that amount is equal to or greater than Step 1, safe harbor HAS been met Therefore, nothing
to put in “Salary/Hourly Wage Reduction” column. If it was not met, $1,230 would be entered in this column
• Instructions with the forgiveness application lay out how to do this for hourly employees
24Source: https://www.forbes.com/sites/anthonynitti/2020/05/16/sba‐releases‐paycheck‐protection‐program‐loan‐forgiveness‐application‐a‐deep‐dive/#1cbad5fd1b2f
Table 2
• List employees with annualized compensation of more than $100,000• Total compensation costs for these employees cannot exceed $15,385
• Best part of this table – no “Salary/Hourly Wage Reduction” column – does not apply to employees who earn more than $100,000
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FTE Reduction Safe Harbor
• Remember loan forgiveness can be reduced if pay or headcount (FTE) reduces during the 8‐week period
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FTE Reduction Calculation
• Forgiveness will be reduced if your average number of FTEs during the cover period is less than the average during the following periods (you get to choose):1. Beginning February 15, 2019 and ending June 30, 20192. Beginning January 1, 2020 and ending February 29, 20203. For a seasonal employer (check SBA definition) either:
• Either 1 or 2 above or• Any 12‐week period between May 1, 2019 and September 15, 2019
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FTE Example
Loan must be reduced by multiplying costs eligible for forgiveness by (3.7/6.4).
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Employee Hours 8‐WeekPeriod
Detailed FTE
8‐Week Period
Simplified FTE
February 15, 2019 – June 30, 2019
A 60 1.0 1.0 45 hours – 1.0
B 40 1.0 1.0 40 hours – 1.0
C 28 0.7 (28/40) 0.5 40 hours – 1.0
D 20 0.5 (20/40) 0.5 28 hours – 0.7
E 20 0.5 (20/40) 0.5 28 hours – 0.7
F 40 hours – 1.0
G 40 hours – 1.0
Total 3.7 3.5 6.4
Source: https://www.forbes.com/sites/anthonynitti/2020/05/16/sba‐releases‐paycheck‐protection‐program‐loan‐forgiveness‐application‐a‐deep‐dive/#1cbad5fd1b2f
There’s More – Safe Harbor
1. Look at two additional periods:1. Period 1 ‐ February 15, 2020 through April 26, 20202. Period 2 ‐ Pay Period that includes February 15, 2020
2. If average FTEs for Period 1 is less than Period 2, then compare Period 2 to total FTEs as of June 30, 2020
3. If June 30, 2020 is greater, the safe harbor is met and no reduction
Basically, if you can put your FTEs back to at least what they were for Period 2 (pay period that includes February 15th) by June 30th you are good even if February 15th is less than 2019 or first two month averages.
Other Considerations that WILL NOT count as a reduction in FTEs:• If you made a good‐faith, written offer to rehire an employee but employee rejected• Employee was fired for cause• Employee voluntarily resigned or voluntarily asked to received a reduction in hours
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Schedule A
First half of Schedule A is pulling numbers from Schedule A Worksheet, so easy enough to follow instructions:
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Non‐Cash Compensation Payroll
Amounts we can included in forgivable costs in addition to “payroll costs”:• Employee health insurance• Employee retirement plans• Employer state and local taxes assessed on employee compensation• Note: Not limited to $100,000 cap
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Compensation to Owner‐Employees/Self‐employed Individuals/General Partners
• These individuals should not be included in Table 1 or Table 2• New Information: Instructions say line is capped at the LESSER of:
1. $15,384 (max 8‐week compensation based on $100,000)2. 8/52 of the 2019 compensation
• Instructions do not require these payments to be “compensation”, so guaranteed payments (not considered payroll) would be included
• What we do not see: a place to include health care and retirement costs attributable to the owners/general partners – hopefully more guidance to come
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Line 10 – Easy!
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FTE Reduction Calculation
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Back to the Actual Application
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The Four Expense Categories
• Line 1 – Payroll Costs – use amounts from Schedule A, Line 10• Line 2 – Business Mortgage Interest Payment
• Only covers interest• Must be a liability of the borrower on real or personal property• Incurred before February 15, 2020
• Line 3 – Business Rent or Lease Payments• Leasing agreement in force before February 15, 2020
• Line 4 – Business Utility Payments• Payment for a service for the distribution of:
• Electricity, gas, water, transportation, telephone, internet access• For service that began before February 15, 2020
• Remember paid or incurred during the 8‐week period• Also remember – no more than 25% of the loan forgiveness may be attributable to non‐payroll costs (line 2, 3, and 4)
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Adjustments for Reductions
• Use amounts from Schedule A to reduce eligible forgiveness amount
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Forgiveness Amount ‐ Finally
• Loan Forgiveness is the lessor of:• Line 8 – Total costs less salary/FTE reduction calculation• Line 9 – Original loan amount• Line 10 – 75% Rule
• Line 11 – We are made it!
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Next Steps
• Submit the application to your lender that is servicing the loan with• Documentation – see page 10 of the application• Then wait – the lender has 60 days after the date on which they receive the application to issue a decision on the application
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A few more questions…
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Questions to Answer
1. I normally fund my 2020 retirement plan contribution at the end of the year, should I push that funding to the 8‐week period?
2. What should you consider when opting for the alternative 8‐week period?3. Do the forgiveness requirements only need to be met during the 8‐week
covered period?4. Is wage reduction on a per employee or overall payroll basis?5. When we applied for the PPP loan, we understood payments of outstanding
debt to be qualified for forgiveness – is that still the case?6. What is a clear definition of utilities?
FAQ’s are supposed to be issued in the next coming days, hopefully we have answers at that time.
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Disclaimer
• This presentation and related materials are designed only to provide general information regarding the subject matter discussed during this presentation. The statutes, authorities, and other laws cited in this presentation are subject to change.
• This presentation and related materials are not intended to provide tax, accounting, legal, or other professional advice to any specific person or entity. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional advisor based on an application of the appropriate law and authorities to the facts and circumstances applicable to that person or entity.
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Questions?
• Whitley Penn Clients ‐ please email your WP Professional
• Whitley Penn Guests – please email your questions to [email protected]
• Everyone – Go to our website homepage and click “Sign Up” in the upper right hand corner to get the latest updates. Select “Tax Alert”
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